Credit CardsStudies & Surveys
How Does LendingTree Get Paid?

How Does LendingTree Get Paid?

LendingTree is compensated by companies on this site and this compensation may impact how and where offers appears on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.

More Americans Maxed Out Credit Cards In Final Months Of 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.

The percentage of credit cardholders with a maxed-out credit card shot higher in all but one of America’s biggest cities at the end of 2020, according to a new report from LendingTree, and the biggest city of them all saw the biggest jump.

LendingTree reviewed the data from more than a million anonymized credit reports of LendingTree users to see how cardholders fared beginning in September 2020 through the end of the year. What we found was higher credit card balances in most of the nation’s 100 most populated cities and more maxed-out cards, both reversals of trends seen throughout the rest of the year.

There could be plenty of reasons for the rise that we saw during these months. Holiday shopping surely played a role. The absence of further government stimulus likely did, too.

Whatever the primary cause, this data leaves little doubt that after surviving — and even thriving — for most of 2020 even as the pandemic wreaked havoc on the nation, things were trending in the wrong direction for cardholders as the year drew to a close.

Key findings:

  • All but one of the nation’s 100 biggest cities saw an increase in the percentage of maxed-out credit cards held by their residents between September 2020 and the end of the year; McAllen, Texas., was the only city to report a decrease.
  • New York City saw the biggest increase in maxed-out cards during the September to December 2020 period. The percentage of New Yorkers with a maxed-out card grew 43%.
  • 83 of the nation’s 100 biggest cities saw their average resident’s credit card balance increase between September 2020 and the end of the year, with 17 of those cities seeing double-digit percentage increases in their debt
  • Allentown, Pa., had the biggest increase at 22.4%, followed by New Orleans, Oklahoma City, and New Haven, Conn.; Albany, N.Y., had the biggest decrease at 4.5%, followed by Greensboro, N.C.; Grand Rapids, Mich.; and Chattanooga, Tenn.
  • When looking at the entire pandemic period from February through December 2020, most big cities saw balances fall, credit limits dip and utilization rates increase.

More maxed-out cards in more places

Regardless of the size of your credit limit, maxing out a credit card is going to negatively impact your credit score.

A maxed-out card means that your utilization rate — how much debt you have compared with your available credit — is sky-high. Utilization is the second-most important factor in credit scoring after your payment history.

In addition, maxing out your credit card may be a sign that your credit card debt is getting out of hand. If you use most or all of your credit limit each month but regularly pay it off at the end of the month, that’s OK. But if you use most of your credit limit because you’re carrying a large balance over each month, that’s a different ballgame.

From the beginning of the pandemic in February through December 2020, 49 cities saw the percentage of cardholders with a maxed-out card grow, while 51 saw them decrease. However, if you look at just September to December, the picture looks quite different.

Virtually all of America’s largest cities saw more maxed-out credit cards at the end of 2020 than earlier in the year, but the biggest growth was in the Big Apple. Nearly 30% of New York City cardholders had a maxed-out card at the end of 2020, compared with just 20% in September. That’s a 43% increase.

The only big city in America to have a smaller percentage of cardholders with maxed-out cards in December than in September is McAllen, Texas.

Balances grew in most places, too

Overall, Americans’ credit card balances decreased significantly in 2020. Extra unemployment benefits, government stimulus and reduced spending because of lockdowns were just a few of the reasons behind that decrease. That doesn’t mean that card balances fell consistently throughout the year everywhere, however.

Eighteen cities saw their residents’ credit card balances rise from February 2020 through the end of the year, while 82 cities saw them fall.

By the end of the year, things reversed course. Looking just at September through December 2020, 83 cities saw at least a slight increase in credit card balances. That includes 17 cities that saw double-digit increases in those balances.

Allentown, Pa., saw the biggest growth, both in percentage change (22.4%) and total dollar value ($1,326) of balances. Three Connecticut cities – Bridgeport in second place, New Haven in third and Hartford in fifth – were just behind Allentown in dollar value, as was New Orleans, which had the fourth-highest dollar increase.

The top five in percentage change looks a little different. Allentown is still at the top, but New Orleans; Oklahoma City; New Haven, Conn.; and Baton Rouge, La., rounded out the top five.

At the opposite end of the spectrum, Albany had the biggest decrease by percentage and by dollar value, with Greensboro, N.C. second and Grand Rapids, Mich., third by both measures.

Split amongst biggest cities when it comes to utilization

While far more cities saw their residents’ card balances rise than fall between September 2020 and the end of the year, there was a more equal divide when it comes to utilization.

Forty-nine of the nation’s 100 biggest cities saw their utilization rates – how much debt they carry compared to their available credit – increase in late 2020. The rest were either unchanged or had utilization rates that fell during that time.

McAllen, Texas, had the biggest increase of any big American city, rising from 27.9% to 32.5%.: a 16.5% jump. Interestingly, McAllen was the only city among the nation’s 100 biggest that didn’t see an increase in maxed-out credit cards.

That may seem unusual, but it is plausible. For example, one city’s rate might be driven higher by a relatively small segment of the population seeing large utilization increases and maxing their cards out while the rest of the city’s utilization largely holds steady. Another city, however, might have a large percentage of its population see significant increases in utilization but have relatively few residents who max out their cards. That’s one explanation for what might be happening in McAllen.

At the other end of the list, Grand Rapids, Mich., residents’ utilization rate fell 18.9%, the largest drop in the nation. It was one of 11 cities to experience double-digit decreases.

The bottom line

After successfully managing their credit card balances for much of the year amidst one of the worst economic crises in our nation’s history, Americans were showing real signs of trouble in late 2020.

More people were maxing out their credit cards. Card balances rose in most cities, and millions of Americans’ utilization rates climbed as well. Delinquencies were still quite low, but the data hinted that without some further government stimulus, things could take a major turn for the worse — and soon.

Thankfully, the second round of economic impact payments came. With the third set of checks potentially on the way, extra unemployment benefits in place for the near future, and deferments and forbearances continuing for many different types of loans, there’s reason to hope that millions will survive financially until vaccinations are widespread and some sense of normalcy returns.

That’s far from guaranteed, however. Millions of Americans’ finances will never be the same in the wake of the pandemic. Millions more will take months or even years to get back on stable financial footing even once COVID-19 is in the rearview mirror.

With that in mind, there are some steps that you can take to help yourself.

Tell your lenders about your struggles: Whether you’ve asked them for help in the past or not, talk to your card issuers and other lenders, and let them know your situation. Even in the best of economic times, it is always a good idea to talk to your lenders if you’re going to have trouble making a payment. In today’s difficult economy, it’s absolutely essential. There’s no guarantee they’ll be willing to help, but you’ll never know if you don’t ask.

Consider credit counseling: Depending on how dire your situation is, it can help to speak with a reputable nonprofit credit counselor, such as one affiliated with the National Foundation For Credit Counseling. They work with you to determine the best next steps for you and help with everything from budgeting to bankruptcy counseling.

Ask for a higher credit limit: Bumping up your credit limit can help preserve your credit score. If you’re not maxing out your card but are just unhappy with how high your utilization rate is, increasing your credit limit can help. For example, if you owe $2,000 and have $5,000 in available credit, your utilization rate is 40%. Just adding an extra $1,000 of available credit can knock your rate down to 30%. Just make sure you don’t see this new, available credit as an excuse for a spending spree. Otherwise, you’re simply making things worse. Again, there’s no guarantee your request will be granted, but it still may be worth asking.

Save, save, save: If you can pay down debt and save simultaneously, do it. That’s how you stop the cycle of debt. With no savings, an unexpected expense soon after paying off your balance may have to go on that card and then you find yourself right back in debt. Yes, it might cost you a bit of interest. Yes, it will take longer to pay off the debt. But in the long run, saving and tackling debt at the same time is the absolute right thing to do, if possible.

Consolidate or refinance: Few things will speed your ability to pay off your credit cards more so than lowering your interest rate. Consider calling your issuer and simply asking for a lower interest rate. It works more often than you’d expect, especially if you have been a customer in good standing with a decent credit score. You could also consider a 0% interest balance transfer credit card or a low-rate personal loan. Balance transfer cards may be the better choice because they can allow you to go a year or more without accruing any interest. You likely won’t find 0% offers on a personal loan, but if you shop around, you might find a rate lower than the one your current credit card offers.

Revisit your budget: Life changed in 2020, and if you haven’t looked at your budget recently, it may not accurately reflect the state of your finances anymore. If you don’t know exactly how much money is coming in and going out of your household each month, you can’t make a meaningful plan to knock your debt. A thorough review of your budget will be time well-spent.

Focus on what’s important: Tough times bring tough choices. If you’re struggling to keep the lights on or keep food on the table, don’t worry if you’re maxing out your card or hurting your credit. Do what you need to take care of your family. There are times when one just doesn’t have the luxury of focusing on the future, and for millions of Americans, that’s the case today.

Methodology

Analysts calculated average credit card balances, utilization rates and the rate of people with at least one maxed-out card from over a million anonymized credit reports of LendingTree accountholders during three time periods (February 2020, May 2020, September 2020 and December 2020) in America’s 100 most populous metropolitan statistical areas.